For Part A of the question I suggest you look at examples in the electronic text

Question

For Part A of the question I suggest you look at examples in the electronic textbook to determine how to prepare the schedule. Foundations of Financial Management (Fourteenth Edition)


Ellis Sport Shop projects the following sales:

April - $75,000

May - $95,000

June - $100,000

Seventy percent of Ellis' sales are on credit with 60 percent of receivables collected in the month after the sale and the rest of receivables collected in the second month after the sale. February sales were $60,000 and March sales were $70,000. In the past Ellis' bad debt percentage has been 0 and is expected to continue.

a) Prepare a monthly schedule of cash receipts for April-June.
b) What is the balance of Receivables at the end of June?

Explanation / Answer

a) Prepare a monthly schedule of cash receipts for April, May and June. April 7,500 April Cash Sales (75,000 x 10%) 21,600 From February (60,000 x 90% x 40%) 37,800 From March (70,000 x 90% x 60%) 66,900 Total Cash Receipts for April May 9,500 May Cash Sales (95,000 x 10%) 25,200 From March (70,000 x 90% x 40%) 40,500 From April (75,000 x 90% x 60%) 75,200 Total Cash Receipts for May June 11,000 June Cash Sales (110,000 x 10%) 27,000 From April (75,000 x 90% x 40%) 51,300 From May (95,000 x 90% x 60%) 89,300 Total Cash Receipts for May (b) What is the balance of Receivables at the end of June. 34,200 From May (95,000 x 90% x 40%) 99,000 From June (110,000 x 90%) 133,200 Balance of Receivables at the end of June

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